Select Committee on Work and Pensions Minutes of Evidence

Examination of Witnesses (Questions 1-19)




  1. Good morning, ladies and gentlemen. Can I open the formal session of evidence this morning for the Committee and welcome our team from the Department for Work and Pensions led by Mr Mark Fisher, who is the director for Performance and Product Management for Jobcentre Plus, and Mr Simon Chipperfield, who is representing SchlumbergerSema. What I suggest we do, Mr Fisher, is for you to introduce the team from the Department. We are very grateful to you for coming. We understand you have done a lot of work with the written submissions which we have studied with interest and we thank you for that. None of this is easy; it is a huge public sector contract; and the Benefits Agency Medical Services , was not perfect itself before 1998. Having said that there are obviously continuing areas of concern which we want to explore with you this morning.

  (Mr Fisher) Thank you. As you say, I am Performance and Product Management Director for Jobcentre Plus. The Medical Services contract is run from within Jobcentre Plus in the Department for Work and Pensions, and I have that responsibility at board level in Jobcentre Plus. I have with me Simon Chipperfield and Carol Hudson, the chief medical officer of Medical Services, and Mansel Aylward, the chief medical adviser to the Department for Work and Pensions; John Sumner, who runs the Disability and Carers' Directorate, with particular responsibility for the management of the Disability Living Allowance Operation, and Paul Keen, who is in charge of disability services within Jobcentre Plus—ie, responsibility for Incapacity Benefit because that is paid from within Jobcentre Plus, and also the full range of new deals under the provision for disabled people within Jobcentre Plus. We have integrated the whole programme of activity for disabled people inside Jobcentre Plus, putting together both the labour market aspects and the benefit aspects, and Paul has that responsibility for me and for Jobcentre Plus. Just by way of background, if that is helpful, as I have said, the Medical Services contract is now being managed from within Jobcentre Plus as a part of trying to bring all provision for working age people together, but it is a Medical Services contract managed on behalf of the whole Department and that means that we manage a contract that also looks after the Medical Services required by the Disability Living Allowance and war pensions and other services but it is managed as a single contract. It is an important contract and a contract that Jobcentre Plus is keen to improve the performance of and to make sure it delivers across the full range of services. As you know, the Medical Services contract was set up originally in 1998; the Government has announced a decision to extend it to a full term of five years; and we are now in the process of negotiating that extension and the contracts extension with SchlumbergerSema, and with that I will hand over to Simon to say a couple of words.
  (Mr Chipperfield) I represent Medical Services. The Department is our biggest customer and, as Mark was saying, we are just in the process of finalising the contract extension which will take it up until the end of August 2005. That has enabled us to put some extra investment into the service over the last few months and over the coming years.

  2. Starting with some general questions to Mr Fisher and the Department team, you have been getting some pretty bad press recently, and this is from the Financial Times, not the Daily Mail: "Outsource benefits contract costs taxpayer £40 million and fails disabled". That is as a result of the recent Public Accounts Committee report and last year, of course, the National Audit Office did quite a critical report, I think, coming to the conclusion almost that the contract that we set out on bravely in 1998 had not been delivered properly. What do you say to that? We on this side of the fence sometimes feel aggrieved at some of the press headlines we get, but this is the Financial Times and the Financial Times usually tells the truth. What do you say to the comments you have had recently about the operation of the contract?
  (Mr Fisher) What I would say is this: as I think you yourself observed, looking back to 1998, Medical Services within the then Benefits Agency was not a part of the organisation that we were proud of. Ministers at the time took a decision to outsource the service and to improve it. It has taken some while, I think, for the service to improve. Some of that frustration at that time in a sense was reflected in the National Audit Office study in terms of when they did the research and survey. I am not at all complacent that we have got this right; I would like to see it even better than it currently is but there is no doubt, particularly in the last year or so that, through a combination of things, performance has improved quite significantly. Medical Services are delivering on I think 43 out of 45 targets the Department has set them—that is 15 targets in the three geographical areas—45 targets in total; they are making an investment in the service and whilst, as I say, none of us are at all complacent and we all want it to work better than it is, there is no doubt it is on an upward curve. Also, we are dealing with some pretty intractable pieces of business here. There are some issues that are not easy, like doctor recruitment which is a big issue and a big problem. The judgment, therefore, is that the contractors are doing pretty well in difficult circumstances; it is on an upward curve and dealing with some intractable problems. To emphasise the point, however, we are not complacent about this and we want it to be even better, and we are putting measures in place to tighten it up yet further and into the future. Publicity has not been good but we are reassured by the fact that we are on an upward trajectory.

  3. So at the end of this two year extension you think things will be demonstrably better, come 2005, because we are looking at a renegotiation then, are we not? You are confident that, when we meet again three months from the final signing of the contract in the year 2005, and the date is in my diary already, you will be able to say with confidence that the predictions you make this morning will be delivered and that the trends are all going in the right direction, and the contract is what you wanted it to be?
  (Mr Fisher) What I would say is this: that the contract is currently delivering 43 of its 45 targets. We have set a slightly stiffer challenge in terms of next year's performance, and no doubt next year we will be setting a stiffer challenge for the year after that. I am confident that, with the investments that have been made by SchlumbergerSema and with the commitment of the Department—because obviously this process interlocks between the role of Medical Services and the role of core staff in the Department, both for Disability Living Allowance and Incapacity benefit—it will get better. Now, the trends are in the right direction: it is going to require a considerable effort to keep it in the right direction, but there is a commitment to maintain that, and I do hope that in two years' time we will be able to come back and say just how well we have done.

  4. One of the things that surprises us and still continues to puzzle me is that one of the benefits it seems to me, and I am not an expert in these matters, if you are going into the market to get the advantages of the private sector is that you have some kind of in-built element of competition. You had three contracts for different parts of the United Kingdom and they all led to the one company, Sema, in 1998 so we, as a Committee, have nothing to compare it with. It seems to me that maybe, in retrospect, one of the geographical areas could have been awarded to somebody else so you could compare and contrast the performance in terms of some of the management techniques. Is there any sense that, going back to 1998, it would have been better to try and split contracts so you could compare and contrast performance?
  (Mr Fisher) I do not know if Simon wants to say anything from a contractor's perspective on splitting it in terms of geographical areas[1]. It was a close call in terms of the contract decisions at that time to end up with a single contractor. I think you are undoubtedly right: in the sense we have lost an ability to compare and contrast between different parts of the country, but service delivery has improved consistently across all areas of the country with the exception of two which Simon will want to talk about, but when we come to renegotiate the contract and reset it in 2005 it is absolutely clear that SchlumbergerSema are not the only player in the game. There are other companies who provide Medical Services, including companies who competed first time round, and we will be seeking to use the leverage that the contract negotiation gives us to lever up performance. It may well be at that point we will revisit the question of geographical areas and so on. To be quite frank, we have not begun in detail to think about how we approach contract renegotiation—that is something we will be looking at pretty soon—but we are wanting to explore every avenue in terms of levering up performance and looking outside at other contractors.

  5. This is a question that should go to Mr Chipperfield but let me ask you first: one of the concerns we had in our 2000 inquiry was that Dr Holden of the BMA made a passionate case that the contract had been made "too lean". Well, this contract price is now 19 per cent leaner. Is the resource there to enable the job to be done properly?
  (Mr Chipperfield) The resource is there: we are investing in our main resource which are the doctors. We have been on an extensive campaign of recruitment for about the last six months and we are having real success in attracting doctors to work for us on a full-time basis. Additionally, we are now re-increasing the contracted doctor population, which is the doctors who work for us on a part-time basis via a subcontractor, which is Nestor Disability Analysis, so we have signed up over the next 12 months to deliver a committed workload as part of the joint workload planning we now have with the Department, and I am able to say that we will deliver that and we will be able to do more in the future because of the success of our on-going recruitment campaign.

  6. Are you making money?
  (Mr Chipperfield) I am not in a position to comment about the money given the nature of the contract and the commercial confidentiality of it.

  7. Is there any way you could share, with a note to the Committee[2], the balance or the value? I understand there is a genuine issue of commercial confidentiality—I do accept that—but the Committee does have a duty to try and make sure that you are not making disproportionate profits out of what is a very big public sector contract. Is there any way you could suggest to us that we might be able to satisfy ourselves on whatever basis you choose to offer us that that question is answered satisfactorily?

  (Mr Chipperfield) I think there is. We are not in an open book situation but we have recently agreed a far greater degree of cost transparency with the Department, so the Department has a high degree of visibility of our cost base and of any third party cost that we bring in in order to deliver the service, so they have a very high degree of visibility.

  8. We might talk to the Department about that. I genuinely understand that there are sensitivities and we do not want to interfere with that but that is interesting, thank you. Turning to one or two questions so we can understand exactly where we are today, we have the two year extension which has to be agreed by the end of next month. Are you in a position to tell us anything about that? Is the pen poised? Are we nearly there, or have you reached basic agreement, or what? Where are we in that process?
  (Mr Fisher) I am formally about to go to ministers to get them finally to take a decision on the extension of contract.

  9. So the argument is over? The adjustments have been agreed?
  (Mr Fisher) We are in the final stage of doing that.

  10. And have any of the criteria changed? There are two points I have in mind that worry me still: the lack of leverage and quality that was discovered, if you like, by the National Audit Office and the Public Accounts Committee report. That is of concern to us. If you are not able to use your influence in terms of the contract legally to get better quality, is that going to improve over the next two years?
  (Mr Fisher) Yes. I referred previously to the 45 targets and on a large number of those, particularly in terms of quality, we are using the contract negotiation extension to ask SchlumbergerSema to lever up performance still further. There are a few examples I can give of the sort of action we are taking but one example is that one part of the contract specifies a requirement for what is called "C" grade examinations which are basically the number of examinations which fail to pass muster in terms of quality of report. At the moment there is a target for those which SchlumbergerSema are meeting; in the course of the contract negotiation we are setting far stiffer targets for next year, and that is the sort of example of how we are using the contract negotiation to set higher standards.

  11. What about information technology? I can genuinely understand these are big systems, and for the benefit of people who have been following the pace in terms of the facts, I might ask you to tell us the scale of the contract and the number of examinations that Medical Services have to do each year because it is a very big operation indeed, but we do understand that information technology systems take a long time to put in and cost a lot of money and if you are dealing with short-term contracts it is difficult, but you do seem to be emphasising quite heavily that IT is of some benefit in the future. Is that one of the conditions that would be improved in the extension for the next two years?
  (Mr Fisher) We are certainly looking to SchlumbergerSema to make an investment not just in IT but in other aspects too. We are working closely with this particular partner and are very gratified that we have a set of six joint working projects which will cover our business and SchlumbergerSema, and one of those is crucially IT dependent and we are grateful for the investment that SchlumbergerSema is making, particularly on this one project, which is about making sure the reports that doctors give to decision makers in the Department are IT-based rather than handwritten, and that requires an IT system and SchlumbergerSema are putting in that investment. That is a key part of the improvement programme, but the Department in its own right is also heavily investing in IT—for example, in the disability living allowance area. By the end of this month every single relevant person working on disability living allowance will have a new PC, a new network and a new piece of IT infrastructure both in central operations in Blackpool and dispersed throughout the country. So on both sides there is a commitment to invest in new IT.
  (Mr Chipperfield) Coming back to your earlier point about quality and the concerns expressed in the last Select Committee report, the key point for us is that we have put in place tough quality and customer satisfaction measures since that report and we are now achieving them. What we are doing as part of this current re-negotiation is putting in place even more stringent quality and customer satisfaction measures across a range of areas. On the issue of IT, there are a number of areas where we have made investment. One example would be on the complaints management system which is now fully computerised and fully automated since August of last year; up until then it was entirely paper-based. That means we have a far greater understanding and ability to track any issues surrounding customer appreciation of what we are doing and any complaints that are raised. Another example is evidence-based medicine. This is a joint project in every sense of the word with the Department and over the next 18-24 months we will implement nationwide a network of all of our sites, 150 plus, and every single doctor doing Incapacity Benefit examinations will use a new application and new medical protocols to carry out the examination and to record the examination and to produce the output. Now IB examinations represent about 70 per cent of our workload, so about 70 per cent of our output to the Department will be generated via a computer within the next 18-24 months.

  12. Would it not make more sense to renegotiate completely the contract for another five year period to give Medical Services a real opportunity to secure substantial IT investment or whatever to get a longer bite at it, rather than just an extension of two years? Is there enough incentive there for the capital investment that is necessary over an extension when you could have had the option of a complete re-negotiation and run for a longer term which would have given security and enabled the contractor to invest with more confidence?
  (Mr Fisher) There is always a balance here. We want at some point in the not too distant future to get the full benefit of going back to the market. In terms of levering up performance we think that is important. We did not think the time was right last year so we have negotiated an extension but I think, if we were to leave it until 2008 before we went back to the market completely for another go at this, we would probably be missing an opportunity in terms of levering up performance. But there is always this tension, not just in this business, in terms of taking those sorts of decisions. One thing we are gratified by is the extent to which our current partner is approaching this with a long term mindset, if you like. I have not seen any evidence that they are scrimping on their immediate plans because they see that two year deadline looming, and I think I would be concerned if that was the case.
  (Mr Chipperfield) I think it is fair to point out that, when these discussions were going on last autumn, we were looking at the four year scenario with reality to the end of August 2005, and that was sufficient for us to make our capital investment decisions and other investment decisions. Plus we do have a long-term perspective and when this is put out for competition next time we wish to compete successfully and win it and carry on delivering the service, so any improvements that we make in that four years not only will benefit the customer in the short term but also our position. So I do not think it was a major consideration.

  13. Finally from me, I accept fully that the National Audit Office and the Public Accounts Committee are looking at value for money and public expenditure issues, and I now want to go into some of the quality issues in terms of the clients' experience in the process. I am looking at the National Audit Office report on page 5 of the Executive Summary, paragraph 23, where they say, "However, the viability of the business remains under acute cost pressure and this has affected the efforts of the Department and the company to improve the quality of the medical assessments and customer service". This quote is now a year old but can you identify the current cost pressures that you see at the moment as they affect the quality as experienced by the customer group that you are trying to sell in this contract?
  (Mr Fisher) Just from the Department's point of view, I know that the Department is on an efficiency challenge and that is reflected in these services just as in any other, but I have to say that our first priority in re-negotiating this contract and sorting out the extension of it to next year has not been to screw the cost base down even further. Our priority has been quality of service and quality of service improvements and we have tilted the balance in that way. We reckon overall this is not an area where we should be looking for dramatic efficiency savings; the first thing we should be looking for, if there is money to be saved, is to re-invest that in terms of improving quality. That is the perspective we currently have on this contract in this area of service.
  (Mr Chipperfield) Similarly, we have taken a long-term perspective and our focus has not been on screwing down every single cost item that affects the way we deliver our service. Our focus has very definitely shifted in the last year or two towards improving whilst having an eye to the cost and whilst making efficiencies but not with that as the first and foremost driver. You asked the question what did we consider to be the biggest cost pressures: I think the biggest cost pressure now in the medium term is doctor remuneration because of the scarce supply of resources in the market place. It is true of other health care professionals as well because of what our competitors, such as the NHS, are doing in terms of remuneration for that skilled group of individuals. So that is where we face the biggest pressure: how do we manage to continue to retain and attract and develop our doctors with that remuneration pressure.

  Chairman: Competition from the NHS doctors' remuneration package may get a lot more acute in the next six hours following the Chancellor of the Exchequer's Budget statement!

Mr Dismore

  14. Can I pursue an issue which I raised with you last time we met which is the question of the way the cases are dealt with by scrutiny of papers as opposed to medical examinations? When Sema took over the contract the number of cases being dealt with by examination was 65 per cent, and when Sema took over that fell to 35 per cent, and my concern at that time which was reflected in the Report was effectively that what that meant was that you could make more money out of the scrutiny than you could out of the physical examination because it was obviously a lot quicker to do it yet you got the same unit price. The net result was that people who may not be entitled to benefits were effectively being passported through because they were not going to complain, with the net result that it was going to cost the Department more through additional benefits being paid out than it was to pay for the number of examinations to go up. I raised this when we debated this on the floor of the House on 6 July 2000[3] and I asked Hugh Bayley, who was then the Minister, about this and in the debate he told me that you had an annual negotiation of the cost of the contract with the contractor and the Government made various bids for the return of monies when, for example, there was a fall in the scrutiny:examination ratio, and that, in the financial year to April 2000, a six or seven figure sum was returned to the Department in relation to costs that have not been incurred by the company, and included the costs not incurred in the scrutiny cases. Obviously there is a big difference between a 6 or a 7 figure sum. Can you tell us what the sum was, or can we be told that at a later date?

  (Mr Fisher) Yes[4].

  15. I also understand that as a result of our Report and the debate in the House by November 2000 new guidelines have been issued and the rate went up to 65 per cent of the sum, which is where it had been to start with before Sema appeared on the scene, but it has now fallen back to around 50 per cent. So you are 50 per cent ahead of where you were at the low point but still 50 per cent behind the high point when the contract was taken over. Can you clarify how the contract has been revised, if it has been revised, to remove the perverse incentive which favours scrutiny rather than examination? For example, is the unit price for scrutiny less than the unit price for an examination, which I think is the only way of addressing this?
  (Mr Fisher) The short answer is we have provided in the contract to remove the perverse incentive, and we remunerate differently now to avoid exactly that happening. We can give you a note about the costs as you requested[5]. In terms of the effect that that has had on the overall pattern, the ratio now stands at about 50 per cent. It is absolutely essential that each case is dealt with on its merits, and that we do not set a specific target for individual doctors and the service in general to hit a particular ratio, but we are reasonably comfortable that that is the right position.

  (Dr Aylward) In addition, one of the performance measures with regard to the decision to extend the contract or not relates to what is called compliance with scrutiny guidelines. You will recall from the discussions and the information we put out to you last time that there are documents which we provide Medical Services with and work up with them to determine which people are best sent for examination. These are called scrutiny guidelines. At one time we discovered by audit that these had not been complied with. We have, therefore, revised those guidelines and in joint seminars with SchlumbergerSema we have looked at the ways in which we could make better use of those guidelines and ensure that doctors are adhering to them. Therefore one of the performance measures is that there will be a 95 per cent compliance with those guidelines. That, in addition to the financial changes, focuses more upon ensuring that the right people are got to examination. We believe that the studies we have done indicate that around 50 per cent is the right number of people sent for examination. There is no "right" method—obviously it will depend upon the exact mix that is going through—but if one looks at the disallowance rate that is around 23 per cent which means that just more than half of the number of people examined are ultimately found fit for work, and we feel that is not a bad hit rate in the sense that, obviously, when you are considering whether or not someone meets certain health criteria on paper, it is not as good as when the person is examined, so you may find some people who turn up do have disabilities which have not been identified in the paperwork.

  16. Can I make sure I am clear on this: does the contract re-negotiation pay less for scrutiny as compared to an examination?
  (Dr Aylward) Most definitely.

  17. And of what order is the differential?
  (Dr Aylward) It is several fold.

  18. If you can give the figures, so much the better.
  (Mr Keen) I cannot give you the accurate figure but it is a very significant difference, and we can send you a note[6].

  19. Of what order is the differential?
  (Mr Chipperfield) It is about four times.

1   Please refer to the supplementary memorandum from the Department for Work and Pensions (MS 01B), Ev 70. Back

2   Please refer to the supplementary memorandum from the Department for Work and Pensions (MS 01B), Ev 70. Back

3   6 July 2000, Official Report, column 511. Back

4   Please refer to the supplementary memorandum from the Department for Work and Pensions (MS 01B), Ev 70. Back

5   Please refer to the supplementary memorandum from the Department for Work and Pensions (MS 01B), Ev 70. Back

6   Please refer to the supplementary memorandum from the Department for Work and Pensions (MS 01B), Ev 70. Back

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